After studying this chapter, you should be able to: |

**LG1 ** | Grasp the basic intuition behind calculating the cost of capital and its relationship to the investor's required return. |

**LG2** | Use the weighted-average cost of capital (WACC) formula to calculate a project's cost of capital. |

**LG3** | Debate the firm's choices in estimating the appropriate capital component costs of equity, preferred stock, and debt. |

**LG4** | Calculate and justify appropriate weights used for WACC projections. |

**LG5** | Clarify which parts of a firmwide WACC can be used in calculating a project-specific WACC and which parts do not apply. |

**LG6** | Note the trade-offs implicit in using either a firmwide WACC or a divisional cost of capital approach. |

**LG7** | Differentiate between the objective and subjective approaches to computing a divisional cost of capital. |

**LG8** | Denote the impact that flotation costs have on capital budgeting decisions and adjust the WACC to reflect flotation costs. |